Fraudulent transactions through mobile wallets are estimated at about 1% of the market at present and experts expect them to rise to more than 2%.Gulveen Aulakh | ET Bureau | January 16, 2016, 09:50 IST

These companies are all in the fastgrowing digital wallet space and are trying to ward off what could emerge as the biggest threat to their business in 2016 – fraud.

Within the realm of digital wallets, mobile recharges, bill payments and ticketing and recharge applications are the most vulnerable due to the benefits and cashbacks that go back into customers’ accounts, say experts. Mobile recharges, bill payments and ticketing and recharge applications account for about 95% of digital wallet frauds.

“India offers a very unique challenge because consumers are gullible,” said Vijay Shekhar Sharma, cofounder of Paytm, which claims to be the digital wallets leader with over 120 million registered users and more than 2.5 million transactions daily, on average. “So, we have to find out ways to run the system even more than differently than the rest of the world.”

Paytm itself blocked about 5.5 million users in 2015 after they were hit by fraud. The company even barred about 17,000 of its 1 lakh merchants over the past eight months.

“Fraud is fast becoming an area of concern for retailers as they gear up for further growth in online commerce” with the number of users making online transactions growing exponentially, the Associated Chambers of Commerce & Industry of India said in a recent report. With the surge in the number of companies in the online wallet space, the risk of fraud has been rising in recent months, Mumbai-based digital payments company TranServ said. During September-October, mobile wallet fraud peaked to 3-3.5% of value, 15-20 times the levels in ecommerce, it said.

The problem areas are the same for all wallet companies, which are mostly focussing on controlling and preventing fraud while adding customers to widen market share.

India has about 135 million wallet users, according to market research firm and consultancy 6Wresearch. PayU Money, Paytm, MobiKwik, Oxigen and My Mobile Payments have captured around 70% of the market revenue, in no particular order, senior consultant Rajat Kharbanda said.

Fraudulent transactions through mobile wallets are estimated at about 1% of the market at present and experts expect them to rise to more than 2% in a couple of years, when the customer base would have widened.

6Wresearch predicts the value of India’s mobile wallet transactions will reach $11.5 billion by 2022. According to Counterpoint Technology Market Research, the segment was worth $3.2 billion in 2015, with an average transaction value of close to $2.

Paytm is attempting to replicate its major shareholder Alibaba’s ‘Smile to Pay’ feature on its app. ‘Smile to Pay’– which Alibaba founder Jack Ma showcased in Hannover, Germany, early last year as one of the beta-stage innovations that it had in store for AliPay – requires a person to look into the camera of a smartphone in order to complete a transaction on the app.

Sharma said Paytm is working on this ‘selfie’ technology to better secure transactions on its platform. “Facial recognition technologies are enabling better mobile commerce. We’re experimenting with it, but launching it is a little different.”

He wasn’t sure when it could be introduced in India. “RBI needs to identify whether face recognition can work as anything beyond a log-in technology,” he said. Moreover, India needs abundant data connectivity and until there is a pervasive presence of mobile Internet such as 4G, heavy image-processing and videocentric features on apps may not work.

The company is also working on other security features with AliPay including iris authentication and thumbprint verification for phones that support them. “Since we are in the business of money and give away a lot of incentives in the form of cashbacks, we do come across users who try to game the system,” said Bipin Preet Singh, CEO of MobiKwik.

Nitin Gupta, cofounder of PayU India, which runs the PayU Money mobile wallet, said recharges are most targeted by fraudsters since the gratification is instant. PayU Money mobile wallet has 8 million customers.

“We have seen users creating several accounts on our system to claim cashbacks multiple times,” MobiKwik’s Singh said. Fraud accounts make up less than 0.08% of MobiKwik’s 25 million users. 6Wresearch added that while mobile recharges have led the market due to the small value of the transactions, tremendous growth in money transfer, bill payments and ticketing can be anticipated over the next six years.

Once a fraud account is detected, it is blocked and no longer allowed access into the system. “Our fraud detection and analysis team closely studies user and transaction data to detect patterns of unusual behaviour,” MobiKwik’s Singh said. The company introduced card checks and device ID checks as counter-measures and they have worked so far. Similar steps were taken by Paytm, which captures Internet connection and device footprint and location to detect and prevent fraud.

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